Debt buyer

A debt buyer is a company, sometimes a collection agency, a private debt collection law firm, or a private investor that purchases delinquent or charged-off debts from a creditor or lender for a fraction of the face value of the debt based on the potential collectibility of the accounts. The debt buyer can then collect on its own, utilize the services of a third-party collection agency, repackage and resell portions of the purchased portfolio or any combination of these options.

At the corporate level Encore Capital Group and subsidiaries form the largest debt buyer and collector in the United States and Portfolio Recovery Associates is the second largest.

The debt buying industry in the United States began as a result of the savings and loan crisis of the 1980s. During this time banks were closing at an alarming rate and the Federal Deposit Insurance Corporation (FDIC), which insures deposits up to a certain amount, received the assets of the bank to cover the expenses associated with repaying the closed banks' depositors.

When the FDIC and eventually the Resolution Trust Corporation (RTC) took control of the assets, they had to find institutions, organizations and private investors that would be willing to purchase the assets of closed banks including both performing and non-performing (delinquent or charged-off) accounts.

The RTC held auctions around the country allowing various organizations to bid for portfolios of mixed assets. At these auctions, the bidders were not able to evaluate the assets prior to bidding and most purchasers had no idea what they had purchased until they had left the auction.

The availability of these assets to the general public was the fuel used to launch the debt buying industry.

Due to the profitability of the business, the debt buying industry had seen dramatic expansion since 2000. Since 2008 and the passing of Dodd Frank, the industry has contracted and become highly regulated, limiting its profitability. Debt buyers purchased approximately $110 billion in face value of delinquent debts in 2005, which is about double the amount bought in 2000.Credit card debt comprises seventy percent of the accounts sold to debt buyers, followed by automobile loans, telecommunications debt and retail accounts. However, purchased debts can also include personal loans, utility bills, medical bills, primary and secondary mortgages, or any type of consumer or commercial credit account.

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